Classification of Assets and Liabilities

What Are Assets and Liabilities? A balance sheet is a statement that outlines the financial position of an enterprise. It is necessary for the balance sheet to show the enterprise’s assets and liabilities based on their characteristic features. If assets are the property and possessions of the business, liabilities are its legal obligations (i.e., the … Read more

Financial Reporting

What Does Financial Reporting Mean? The scope of financial reporting is broader than just reporting information through income statements, balance sheets, authoritative pronouncements, and regulatory rules. Financial reporting concerns not only monetary information but also non-monetary information. Financial reporting does not mean reporting information only through income statements and balance sheets. If crucial information is … Read more

Inventory Control System

What Is an Inventory Control System? Inventory control systems are critical for businesses due to the importance of the inventory, which is a major asset. It is through the inventory that most of a business’s operating activities take place. Therefore, it is crucial to establish effective control systems to safeguard the inventory (e.g., to minimize … Read more

Computerized Accounting

To understand what computerized accounting is, it’s essential to know how accounting systems can be represented. So, let’s examine the figure below. The purpose of accounting is to provide financial information that is useful for decision-making. Accounting can be viewed as a system (or a process) that converts data into useful information. The information processes … Read more

Adjusting Entry for Accrued Income

What Is Accrued Income? Accrued income is money that’s been earned but that isn’t received during the accounting period. Examples of accrued income include interest on deposits, rent, commissions, and discounts. Since accrued income accumulates in the current year, it should be credited to the income statement (trading and profit and loss account), and the … Read more

Accounting Conventions

What Are Accounting Conventions? Accounting conventions are general rules of practice arising from customs, usages, and traditions. These conventions serve as the guiding principles for accounting. Accountants follow these rules based on the widely accepted idea that accounting practices should be consistent, that financial statements should be prepared on a conservative basis to mitigate the … Read more

Economic Value Added (EVA) Concept

What Is Economic Value Added (EVA) Concept? Economic Value Added (EVA) is a new concept that is used by companies and their consultants as a performance measure. In generic terms ‘value-added’ refers to the additional or incremental value created by an activity or business venture. Economic Value Added (EVA), or economic rent, is a widely … Read more

Creative Accounting

What Is Creative Accounting? Creative accounting or aggressive accounting is a method used to manipulate financial figures. It does not violate the letter of the law or accounting standards but it is very much against their spirit. Moreover, creative accounting certainly does not provide the true and fair view of an enterprise that accounts are … Read more

Window Dressing

What Is Window Dressing? Window dressing is when managers in an organization take measures to make their financial statements appear better than they actually are. The basic idea of window dressing is to mislead shareholders and investors by presenting a favorable picture of the organization’s performance. For example, if a company has many shareholders who … Read more